ONE OF THE MOST ironic aspects of the 1984 campaign has been Walter Mondale's bitter frustration as Ronald Reagan stumps the country presenting himself as the true heir of John F. Kennedy.
But a close consideration of the Reagan and Kennedy records yields the huge and historic conclusion that Ronald Reagan's proudest achievements as president, exceeding all other administrations since World War II in positive impact, comprise in large part the belated fulfillment of the legacy of the young Democrat whom Reagan bitterly opposed.
Because of Reagan's intimate link of inspiration and policy to Kennedy's presidency, he can reach beyond the narrower Republican constituencies and stand today on the verge of a reordering of the United States and a revitalization of America comparable to Kennedy's promise of the 1960s. He has richly earned reelection.
Both presidents brought to the office an Irish macho style and a mandate to "get America moving again." Both succeeded beyond all expectations in bringing new growth and national confidence. But Reagan's accomplishments will still fall short of the Thousand Days of JFK without the bold consummation of a second term.
Kennedy's administration followed a siege of dismal budget balancing, 91 percent tax rates in the top personal bracket, and torpid expansion in the post-Korean years of President Dwight D. Eisenhower. The American public tolerated this record chiefly because of still- acute memories of the even worse economic management of the 1930s. But Eisenhower completely failed to transcend his own personal support and establish the Republican party as a vessel of realignment.
The economic boom ignited by Kennedy, who took inspiration from the tax-cutting Ludwig Erhard of West Germany, banished the prevailing myth of U.S. senescence and the bland resignation to a pace of U.S. expansion far slower than its foreign rivals. Unlike any other president until Reagan, Kennedy left his party incontestably in command of the political heights of progress and prosperity.
Similarly, the Reagan years have capsized the entire facade of alibis and excuses for stagnation offered by the economists of the 1970s. Just as Kennedy rebuffed the theorists of a "mature" U.S. economy, Reagan has made obsolete the entire vocabulary of '70s pessimism.
No longer is it plausible to speak of the zero-sum society, the limits to growth, the death of productivity, the core rate of irreducible inflation of 6 to 7 percent or the New Industrial State of large corporations and governmental bureaucracies as the chief source of innovation and jobs.
No longer is it tenable to talk of the exhaustion of energy and resources, the enduring loss of American technological leadership, or the Phillips curve assumption that growth cauinflation. Reagan has renewed the Kennedy promise of rapid investment-led growth, replete with new technologies, declining energy prices, low inflation and an upsurge of entrepreneurship.
Kennedy and Reagan policies each unleashed eight quarters of surging business productivity growth, rising at an average pace of near 3.5 percent following tax cuts. The Reagan record reached 4.6 percent productivity growth in the second quarter of 1984.
In neither case was the productivity upsurge a result of laying off workers. Just as Kennedy's cuts brought a doubling of job growth, the Reagan program spurred the creation of 6 million net new jobs and brought the share of the adult population employed to 15 percent higher than European rivals.
Nor did Reagan follow the inflationary course of job creation pursued by President Carter. Carter's administration inherited a strong economy and created some 10 million jobs but only by reducing real wages some 10 percent and bringing an actual downturn in productivity. Reagan, like Kennedy, created jobs with strongly rising real wages and productivity.
Both Reagan and Kennedy defied the counsels of high- tax austerity and redistribution to unleash the tremendous energies of American enterprise. But Kennedy demonstrated a broader range of growth policies that made many of Reagan's successes possible.
Kennedy's manifestly effective tax rate cuts directly shaped and inspired the Reagan program; the Kennedy Round of trade negotiations established the system of low tariffs in which the Reagan policies could find their international fruition; the Kennedy space program helped promote the computer and semiconductor revolution that is flourishing under Reagan; the Kennedy Civil Rights bill enabled the Sun Belt to escape the paralysis of caste; and the Kennedy immigration bill, overthrowing quotas that favored white Europeans, admitted to our shores many of the Asian and Third World entrepreneurs, innovators, and workers who have made some of the most crucial contributions to the Reagan recovery.
The Kennedy presidency ended in tragedy and the boom he ignited became inflationary and went sour as a result of surtaxes levied for Vietnam. In 1969-70, his brother, Sen. Edward M. Kennedy (D- Mass.), ironically introduced capital-gains tax hikes that were signed by Richard Nixon and that destroyed the U.S. venture capital industry and technological edge in the 1970s.
Venture-capital outlays dropped from nearly a billion to a few score million a year. Leading American entrepreneurs such as Eugene Amdahl of the Amdahl Corp., Jerry Sanders of AMD, Richard Petritz of Inmos, and Federico Faggin of Zilog sold out to foreigners or to oil companies to raise funds. Five American semiconductor firms slipped away to Japanese ownership. The demoralization of Silicon Valley epitomized a general crisis of American innovation and productivity as the Kennedy policies of growth gave way to a '70s preoccupation with the limits to growth.
But the Reagan presidency is at last on the verge of consummating the promise of the Kennedy years, working nothing less than a revolution in the balance of economic power and political leadership in the world.
Since 1980, the U.S. share of global GNP has risen from some 28 per cent to nearly one third, estimated for 1984, as the United States flourished and Europe stagnated. Accomplished by the combination of an estimated 10.5 percent net real GNP growth in the U.S., seven quarters of 20 percent annual real growth in high-technology investment, and a soaring exchange rate for the dollar, this U.S. revival had its origins in the capital-gains tax cut of 1978 (strongly opposed but then signed by President Carter) and the maturation of microchip technology.
But the revival turned into runaway expansion chiefly because of Reagan's massive "supply-side" economic program. If the tax-rate cuts are continued, the U.S. can provide an enduring spearhead of advance for the world economy. Depending on the policies of the next four years, the strong dollar today, like the strong yen and Deutschemark of the '60s and '70s, can become at once the embodiment of faith in an investment-led and non- inflationary economy and a key instrument of its perpetuation. Or like the expectations that now sustain the dollar, that index of confidence in America can collapse in fears of new taxes and inflation.
To continue his achievement, Reagan must remember the crucial sources of his own success in the successes of Kennedy: the courage to go on the offense against protectionism, to recognize boldly the value of immigration to U.S. growth, to inspire the black poor with a new sense of participation in the U.S. economy, and most of all, to defy the economists of austerity and redistribution with a relentless program of cuts in tax rates, including the crucial top rates.
Like the Japanese who cut their rates in 17 out of the 20 years of their record-breaking ascent, the Reagan administration must come to understand economic leadership as an unremitting agenda of emancipation, cutting the costs of work and enterprise and thus enlarging the revenues of both the public and private sectors.
In this effort, the president should recall Kennedy's bold response to deficit-fearing critics of his tax cuts. "Our true choice," Kennedy told the Economic Club of New York in December 1962, "is not between tax reduction on the one hand and the avoidance of large federal deficits on the other . . . . An economy hampered by restrictive tax rates will never produce enough revenue to balance the budget -- just as it will never produce enough jobs and enough profits."
According to data supplied by the Organization for Economic Cooperation and Development, for the last several years average governmental deficits have been drastically higher as a share of GNP in the rest of the industrialized West than in the United States. Yet the recovery did not begin in France, Canada, Italy, Sweden, Belgium, Denmark or any of the other countries with deficits near twice as large a the U.S. as a share of GNP or with faster money growth. Nor did the recovery begin in Japan, Germany, or Britain, with slightly lower deficits than the U.S. but without supply-side tax cuts. Keynesian "reflation" of consumer demand through government spending was tried and failed in Europe.
The American recovery was investment-led: the first U.S. expansion since World War II in which business investment in plant and equipment rose twice as fast as GNP in the first year. Nor was this investment surge chiefly induced by the corporate tax cuts, though they were important in sustaining it. The key catalyst of growth was high-technology investment, leaping up at a 29 per cent annual rate in the first quarter of 1983 and continuing at a near 20 percent average rate for the seven following quarters.
But the relative treatment of high-technology investment actually grew less favorable under the liberalized depreciation allowances in the 1981 tax law. These provisions were primarily designed to benefit heavy industry long overtaxed during the inflation of the 1970s. The key policy change benefitting high technology was the drop in personal tax rates on incomes earned by entrepreneurs of new companies and their workers.
The resulting upsurge in spending on new equipment, rising at three times the average pace of previous recoveries, dropped the mean age of U.S. plant and equipment below Japan's for the first time in decades and impelled the United States back into the world lead in the use and creation of high technology.
A flowering of entrepreneurship in software -- not even counted in the official figures on investment -- allowed the U.S. to apply computer-based equipment at a 50 percent faster pace than any other major country. This high-tech revival led to a flood of iports of computer components that some observers mistook for evidence of declining American competitiveness. In fact, the imports reflected the faster adaptation of the American economy to the computer age and the faster growth of U.S. GNP.
As economist Robert Mundell, the founder of supply- side economics, predicted in 1972, the country that led the world in a non-inflationary recovery spurred by tax cuts would undergo both a rise in its currency and a surge of imports.
As it turned out, the supply-side program brought advances in GNP, technology, and employment that allowed the United States in two years to achieve a stronger revival of exports than usual in recent recoveries (though the export revival was submerged in the statistics by the abnormally massive wave of imports). Meanwhile, the federal deficit, after reaching a peak in the third quarter of 1982, dropped 25 percent as a share of GNP by the second quarter of 1984.
Many economists, in the administration and out, plugging the administration's spending projections into their computers, nonetheless predicted huge future deficits as far as the eye could see unless growth soared beyond all reasonable expectations. But it was just such models that the Reagan record had already confounded. All the economists omitted the huge revenues from tax shelters that could be reaped by the flatter and simpler tax structure favored by Republicans in the administration and in Congress.
Even the drop in the top personal income tax rate from 70 to 50 percent elicited a bonanza of revenue from the highest income taxpayers in both 1982 and 1983, with a 55 percent increase in the number of returns reporting millionaire taxable income, and a rise in receipts from the "rich," giving them their highest share of income tax payments in a decade. This effect, plus the other benefits of a revival of economic health in lowering government spending on subsidies and transfer payments, will reduce the deficit steadily through a second term, if tax rates are cut again.
Under Reagan, the United States regained its role as the world's exemplary economy. After decades of looking to Europe and Japan for inspiration, leaders around the world began to seek the lessons of the American Miracle, as it was termed by none other than Francois Mitterand of France, who came to Silicon Valley to pay tribute and returned to France proposing an 8 percent tax-rate cut. This reversal in the flow of influence was a commanding symbol of the Reagan administration's success in fulfilling the promise of JFK, also a European favorite.
The Reagan administration also succeeded in changing the attitude of the U.S. public toward government. Following David Stockman's acute analysis of 1975 in The Public Interest, "The Social Policy Pork Barrel" was at last attacked, while the safety net programs for the poor were resolutely maintained, actually rising by $5 billion in 1980 dollars according to computations at the American Enterprise Institute, not including Social Security and Medicare.
As promised, no major new social programs were enacted, power shifted to the state and local level under bloc grant allocations, and the burden of proof shifted decisively to those who desired new federal spending.
Yet the Reagan presidency cannot claim significant success on the poverty front. Although the White House persuasively rebuts charges that poverty is increasing at a time of surging income and employment growth (the census data missed most of the employment upsurge), it cannot dismiss the clear testimony of a continuing tragedy in the midst of even our most flourishing cities.
So far the Reagan administration has offered chiefly jobs and rhetoric to the American family. The jobs were valuable, but their benefits mostly missed the single parent households of the ghetto and the lower-middle-class households on the front lines in the war on poverty. Because of the decline in real value of the income-tax deduction for a dependent child (which would be worth $6,000 today if it had increased apace with inflation and incomes since World War II), the tax burden has shifted heavily onto families with children.
Because of the fivefold rise in the value of welfare benefits, these families, white and black, have faced increasing incentives to break up, and teen-age girls face rising inducements not to marry the fathers of their children. The result has been a plague of family breakdown and despair among the American poor and illegitimacy rates near 80 percent in inner cities.
This is not a racial problem. It is a crisis of the welfare state. Sweden, for example -- the rich, white, middle- class country that pioneered many of the social programs of the American left -- now faces a national illegitimacy rate near 40 percent, with all the associated problems of delinquency and drug abuse.
Although Reagan did not create this problem, its solution has become a central test of his conservative approach to social issues. Just as Kennedy had to face divisive civil-rights challenges he never invited, Reagan in his second term must confront the crisis of the urban family.
Crucial will be a deep concern in all his tax and welfare policies for their impact on poor families. The government must adopt programs that keep families together rather than drive them asunder. If Reagan can help the American family maintain its economic independence while sustaining a progressive stance toward trade, immigration, and technology, he can leave a legacy to his followers greater and more enduring than Kennedy's.
Moreover, he can outdo the tragically aborted Kennedy record by simultaneously rendering the Republican Party a suitable vessel to fulfill the promise of his own vision. Rather than allowing his followers to deny and dissipate his own achievements as Kennedy's Democratic followers betrayed the legacy of the Thousand Days, Reagan can remake the Republicans in his own image as the party of economic growth and progress.